Lazydays Holdings, Inc.
Q1 2019 Earnings Call Transcript

Published: 12 May 2019

[Operator:]

Good morning. My name is Jason, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lazydays Holdings, Inc. First Quarter 2019 Financial Results Conference Call. [Operator Instructions]. Thank you. James Meehan, you may begin your conference.

[James Meehan:]

Thank you, Jason. Good morning, and thank you for joining us for our first quarter 2019 financial results conference call. I'm James Meehan, Corporate Controller at Lazydays. We issued the company's earnings press release this morning. A copy of the earnings release is available under the Events & Presentations section of the Investor Relations page of our website and has been furnished as an exhibit to our current report on Form 8-K filed with the SEC. With me on the call today are Mr. Bill Murnane, our Chairman and Chief Executive Officer; and Mr. Nick Tomashot, our Chief Financial Officer. As a reminder, please note that some of the information that you will hear today during our discussion may consist of forward-looking statements, including, without limitation, statements regarding revenue, gross margins, operating expenses, stock-based compensation expense, taxes, product mix shift and geographic expansion. Actual results or trends for future periods could differ materially from forward-looking statements as a result of many factors. For additional information regarding factors that could impact the forward-looking statements, please refer to the risk factors discussed in the Form 10-K filed with the SEC on March 22, 2019. We also will discuss non-GAAP measures of financial performance that we believe are useful to the company, including EBITDA, adjusted EBITDA and adjusted EBITDA margin. Please refer to our earnings press release for reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures. For the three months ended March 31, 2019, the financial information presented represents the operating results of Lazydays Holdings, Inc. For the three months ending March 31, 2018, the financial information presented represents the combined operating results of Lazydays Holdings, Inc. for the period from March 15, 2018 to March 31, 2018 with the operating results of Lazy Days' R.V. Center, Inc. for the period from January 1, 2018 to March 14, 2018. Now it is my pleasure to introduce Bill Murnane.

[William Murnane:]

Thank you, James, and good morning, everyone. Thank you for joining us this morning. I will give a quick overview of what we are seeing in our markets, and then Nick will give more details on our specific performance. Quarter one of this year began with similar slow demand as we experienced in quarter four of last year and remained relatively weak through February. We did begin to feel demand improve a little in March, but it was still weaker than March of 2018 - the March quarter of 2018. It is far too early to get any read on quarter two of this year, but we should begin to benefit from the addition of our Minneapolis and Knoxville dealerships in quarter two of this year. Now I'm going to turn it over to Nick Tomashot, our CFO, to take you through some of the financial highlights of the first quarter.

[Nicholas Tomashot:]

Thank you, Bill, and good morning, everybody. Please note that unless stated otherwise, the 2019 first quarter result comparisons are to the same quarter ended March 31, 2018. Total revenues for the quarter were $173.1 million, down $4.7 million or 2.7% from 2018. Recreational vehicle unit sales, excluding wholesale units, were 1,974, down 80 units or 3.9%. RV sales revenue was down 3.6% as well at $152.6 million for the quarter, down $5.7 million. New RV unit sales were 1,216, up 11 units or 0.9%. There was a product mix shift for the quarter from motorized towards towable vehicles, and our average selling price for new vehicles was $1,900 lower than prior year at $80,000, down 2.3%. Net new RV sales revenue was down $1.3 million or 1.3% to $97.8 million. For the pre-owned side of our business, there was a unit and revenue decline driven by a decline in pre-owned motorized vehicle sales. This decrease was driven by limits in the availability of quality pre-owned motorized units. Pre-owned units sold, excluding wholesale, were 758, down 91 units or 10.7%. Pre-owned revenue for the quarter was $54.8 million, down $4.4 million or 7.3% from 2018. The average selling price of pre-owned recreational vehicles was $65,400, down $3,500 or 5.1%, reflecting the shift in product mix towards lower list price towables. The decline in our retail pre-owned vehicle sales was partially offset by a $2.2 million increase in wholesale sales compared to 2018. Revenues from our other lines of business consist of parts, accessories and related service, finance and insurance or F&I revenue as well as other miscellaneous revenue, including consignment sales commissions, campgrounds, rentals, restaurants, et cetera. In total, combined revenue from these other lines of business was $20.4 million, up $0.8 million or 4.4% compared to 2018. The increase was driven by F&I revenue growth of $0.4 million or 4.5% to $9.7 million, and parts and service revenue increased $0.8 million or 10.2% to $8.8 million. These increases were offset by declines in other miscellaneous revenue primarily driven by decreased commissions on consignment sales. Q1 gross profit was $36.9 million, down $2 million versus 2018. Gross margin declined between the 2 periods to 21.3% compared to 21.9% in 2018, but the change is due to the product mix shift towards new vehicles, primarily driven by decreases in pre-owned motorized unit sales. Excluding transaction costs, stock-based compensation and depreciation and amortization, SG&A for the quarter was $26.5 million, down $0.1 million compared to prior year. Stock-based compensation and depreciation and amortization increased $0.9 million and $1.1 million, respectively, compared to prior year. These noncash expenses have increased compared to prior year, stemming from the March 15, 2018 merger between Andina Acquisition Corp. II and Lazy Days' R.V. Center, Inc., which included options issued to management and increases in intangible and intangible asset valuations on our balance sheet. Transaction costs decreased by approximately $3 million compared to prior year due to the 2018 fees associated with the merger between Andina and Lazydays. Net income for the first quarter was $1.8 million compared to net income of $3 million in 2018. The $1.2 million decline reflects the $2 million lower gross profit for the quarter plus the $2 million higher noncash expense for stock-based compensation and depreciation and amortization, partially offset by the $3 million decline in transaction-related expenses and $0.1 million lower SG&A. Income tax expense remained relatively flat at approximately $1.2 million for 2019 compared to 2018. Adjusted EBITDA was $9.4 million for the quarter, down $2.1 million. Adjusted EBITDA margin decreased by 110 basis points to 5.4%. Please refer to our earnings release for the table, which includes a reconciliation of GAAP net income to adjusted EBITDA and net income margin to adjusted EBITDA margin. Now turning to the March 31 balance sheet and our financial position. We had cash on hand of $31.1 million and net working capital of $46.8 million, with cash up $4.5 million compared to December 31, 2018, generated primarily by the $24.1 million decrease in inventory offset by the associated pay-down of our floor plan. At the end of Q1, we had approximately $143.2 million in inventory, consisting of $106.1 million in new vehicles, $35 million in pre-owned vehicles and approximately $3.7 million in parts inventory and LIFO reserves of $1.5 million. As of March 31, 2019, we had no borrowings under our $5 million revolving credit facility, $17.1 million of term loan outstanding and $124 million in gross notes payable to our floor plan facility. We also had approximately $5.2 million outstanding on notes payable related to acquisitions. Thank you for your time this morning, and I'd now like to turn the call back over to Bill Murnane.

[William Murnane:]

Thank you, Nick. As we stated in our press release, we are generally pleased with our performance in quarter 1 of 2019. In spite of an industry slowdown and more competition for fewer customers, we were able to keep our margins relatively flat with the same period in 2018. The general managers and sales teams at our dealerships did a great job of articulating the Lazydays value proposition to our customers and not simply succumbing to the price competition that may have existed in the market. We closely manage our dealership inventory - we closely managed our dealership inventories during the quarter, and we're pleased to exit the quarter with same-store inventories below 2018 levels. We feel good about our inventory - current inventory levels, and we believe our inventory is well positioned going forward. As Nick stated, we were able to generate $4.5 million in cash during the quarter, and this will help support our continued geographic expansion. We believe our growth opportunities are strong, and we will continue to execute on our expansion strategy. That's all for our prepared remarks. Jason, please open the line for questions.

[Operator:]

[Operator Instructions]. Your first question comes from the line of Fred Wightman from Citi.

[Frederick Wightman:]

Could you maybe just give a little bit more color on sort of the retail cadence throughout the quarter? It sounded like things improved in March. I wasn't sure if that just sort of got less negative or if it actually turned positive. And then anything sort of from a preliminary perspective that you're comfortable sharing for 2Q would be helpful.

[William Murnane:]

Yes, sure. In March, it was a big improvement or - was a big improvement over January and February, which started out quite slow. Relative to prior year, it was still down, but just the trend was certainly more favorable, and April was probably more similar to March. Too early to tell about the rest of the Q2, Fred. So we're in - and we don't give guidance, as you know, so that's probably about all we can say for now.

[Frederick Wightman:]

Yes. That's really helpful. And then just from an industry perspective, I think in the past, you had talked about the industry being down anywhere from sort of down 10% to flat. Can you just sort of share your updated thoughts on that? Is that still sort of how you're thinking about the year?

[William Murnane:]

Yes. We look at the same data you guys look at and hear commentary from others. Yes, we kind of feel the same. That's how this year is going to go. Again, I'd like to point out that the industry strength - the strongest quarters are really Q2 and Q3 because the majority of the industry is in the northern part of the country, and this - we're just coming into the strong selling season for the northern part of the country. We're a little different because we have a sizeable presence in the southern half of the country, so we do have quite a bit more strength than most in Q1.

[Frederick Wightman:]

Sure. In the weather-impacted markets, I think you talked about those a bit in the release. I understand that your footprint is a little bit different than the broader market. But in those markets where you did see some weather impact as we've sort of moved into the early spring here, have trends picked up there?

[William Murnane:]

Yes. In the northern markets where we and others experienced weather, we're definitely seeing - the thaw has arrived, and people are coming out. We're seeing a lot more activity, which we expected, but it is happening now.

[Frederick Wightman:]

Okay. And then just lastly, on the used business, I mean a little bit softer here in the quarter, it sounded like, specifically on the motorized side. Is that just due to product availability? Can you just sort of talk about how the new versus used is shaking out and how that used inventory is in the channel today?

[William Murnane:]

Yes. It's all about supply, and it's just really hard for us to get as much supply as we would like and the quality of supply that we would like. And I think that's - what we're reading is that's similar to others in the market, but it's all on the supply side with used. We can sell it if we could get our hands on it.

[Operator:]

[Operator Instructions]. Your next question comes from the line of Steve Dyer from Craig-Hallum.

[Ryan Sigdahl:]

Ryan Sigdahl on for Steve Dyer. To start, I think you said parts and service was up 10%, if I caught that right, in the quarter. How much of that was organic? And then what drove that strength?

[William Murnane:]

Nick, do you want to take that?

[Nicholas Tomashot:]

Yes. We're not really breaking that out, but the - a large portion of it was organic. And we really have been putting our focus on our retail service business and saw some nice growth in that.

[William Murnane:]

And Ryan, we would - I'll add to that. We would expect that to continue. As we put in our press release, we should open a brand-new, fairly large service facility in Minnesota, which our dealership was under capacity in terms of service bays, so - and we think the market was under-serviced from just a pure service perspective. But I think you're going to see more of that going forward. So we have a significant focus on the service side of the business, so we're hopeful you're going to see more growth there as we move forward.

[Ryan Sigdahl:]

Thanks, Bill. And that's a good segue to my next question kind of on that new service center that's going to be opening up soon. How much upfront cost was there in Q1 and then expected here in Q2 associated with that before it fully ramps? And then secondly, you mentioned some thoughts about expanding the service offerings, but do you think that's more of expansion of existing facilities? Or do you ever think about opening stand-alone service centers?

[William Murnane:]

Yes. So the first part of your question, Ryan, was - could you repeat that, please? I'm sorry. About costs?

[Ryan Sigdahl:]

Yes. Just if there was any onetime-type costs with the startup of that facility in Q1 and then expect some probably in Q2 here before it ramps.

[Nicholas Tomashot:]

Yes. It was actually very minimal. When we did the sale-leaseback on the property there, we were - included the build-out facility and the terms of the lease, so we're able to effectively finance both of those costs. And we're just now ramping up the hiring curve for the facility and with a focus on techs that can actually generate revenue. So the upfront costs have been pretty minimal besides the capital expense, which were all run through the lease.

[William Murnane:]

Yes. Regarding the second part of your question, Ryan, we'll look at both, both expanding existing dealership service offerings and the potential of just having stand-alone service offerings.

[Ryan Sigdahl:]

Great. One final one for me, and then I'll turn it over. But you mentioned some commentary about inventory, that used was - that there were some supply constraints in the quarter, but then you also made the comment that you feel good about where inventory is right now. So maybe just combine those two and current thoughts on inventory balance today and what that could mean for Q2, Q3 on supply.

[Nicholas Tomashot:]

Yes. Actually, our same-store inventories, as Bill has mentioned, are actually down from where they were a year ago, so we really feel good about how we managed that during the quarter. The short supply is on the used inventory, and so the - and more importantly, quality used units. I think you'll notice in my commentary, we actually wholesaled more units than we did a year ago, I think $2 million more. And the margins are better on the used business, and we're trying to find all the quality used units that we can.

[William Murnane:]

Ryan, we have a reputation for quality with our customers. So we sometimes take trades that are not of the quality to put on our lot, and as Nick said, we have wholesaled a lot of them. So it's a combination of not just supply but good supply that we feel comfortable putting on our lot and selling to customers.

[Operator:]

There are no further questions at this time. I turn it back over you.

[William Murnane:]

Yes. Thank you, Jason. Thanks, everyone, for joining us this morning. We look forward to speaking with you next quarter. Have a great day.

[Operator:]

That concludes today's conference call. You may now disconnect.